Cuts, caps and goalposts

Originally posted on July 22 on Inside Edge 2, my blog for Inside Housing

Looking to gauge the effects of the latest benefit cuts on housing? The official impact assessments are at best a starting point.

Documents published for the second reading of the Welfare Reform and Work Bill on Monday evening (available here) do give the Department for Work and Pensions’ (DWP) view on what to expect, but there are several reasons why it is a severely blinkered one.

First, they only cover what is actually in the Bill and many of the main housing benefit changes in the Budget do not require primary legislation.

So there is an impact assessment of the five-year freeze on most working age benefits but it does not include the freeze of the local housing allowance. Similarly, we do not get the DWP view on ending automatic entitlement to housing benefit for 18 to 21-year-olds because that will be done by regulation rather than primary legislation.

Second, some of the things that are in the Bill still do not get an impact assessment. We get no official government view on the effects of reducing social rents by 1% a year. That means there is no response to the estimates of the impact on new development by the National Housing Federation and Office for Budget Responsibility, or Right to Buy replacements or housing association and council budgets.

Third, there could be reasons to doubt the accuracy of the estimates of the numbers of households affected by the introduction of what is officially a ‘tiered’ benefit cap. From April 2016 this will be £23,000 a year for families in Greater London and £20,000 in the rest of the country (£15,410 and £13,400 for single people with no children).

Here are the official estimates:

The caps will affect 126,000 households in 2017/18, the first full year of the policy. These include 156,000 adults and 333,000 children

Of these, 92,000 will be additional, including 112,000 adults and 224,000 children.

They will suffer an average benefit reduction of £63 a week, with the median £50 a week. The average for the newly affected 92,000 is £39 a week, while those already capped at £26,000 would lose £64 a week.

Around 64% of capped claimants will be single women (most of them single parents) compared to just 12% single men.

Three-quarters will be aged 25 to 44 (because they are most likely to have children).

94% of households in receipt of carer’s allowance will be exempt – but 6% will not be (I think because they are not in the same household).

In mitigation, the assessment cites increased help for childcare costs for households moving into work and £800m of discretionary housing payments available for five years from 2016/17.

Savings to the Treasury (in cash terms) rise from £95m in 2016/17, where it looks like the new caps will be introduced area by area, to £480m by 2020/21. Total savings over five years are put at £1.6bn (double the level of DHPs, which also have to cope with all the other cuts in housing support).

However, the story does not end there. The assessment points out that these are ‘static’ estimates that do not take account of behavioural factors such as the cap encouraging more people to move into work. The DWP obviously takes a rose-tinted view of these. Existing exemptions from the cap are retained including being in receipt of working tax credit (working more than 16 hours if you are single or 24 for a couple).

But are the numbers right to begin with? Judging from estimates by Savills for Inside Housing last week, private and affordable rents in whole swathes of the country will be unaffordable under the new cap. An impact assessment of a £23,000 cap by Citizens Advice earlier this month put the numbers much higher at 150,000 adults and 395,000 adults – and that did not include the further reduction outside London to £20,000. The National Housing Federation estimates that 205,000 households will be affected, including 68,000 in housing association homes, and that the tipping point will be having more than two children. Crisis argues that the cap will also affect some single person households for the first time.

Joe Halewood has used the DWP housing benefit statistics to come up with an even higher estimate. He puts the numbers at 198,000 households and 654,000 children – and that is just outside London and using pretty conservative assumptions about the number of households that will be exempt them from the cap.

All of these estimates use different methodologies and all have to cope with the fact that some factors, such as the number of formerly employed households in the grace period from the cap at any one time, are very difficult to quantify.

Some of the other changes in the Bill could also have an impact on the cap. The reduction in social rents will ease the pressure for tenants and the restriction of child tax credits to two children for claims after April 2017 could also leave more money within the cap available for rent (if not to feed and clothe the children).

However, it seems beyond dispute that the impact of the new cap will be far in excess of the existing one and that it will reach beyond London and beyond large families and hit much larger numbers of tenants and children than before.

Fourth, while the assessments are civil service documents, do not expect a rigorously independent view. You would not guess, for example, from the cheery impact assessment on the benefit cap that the evidence on the impact so far is at best ambiguous.

It also carefully lists the attention that was paid to considerations such as the Public Sector Equality Duty and to have taken account of UN and European conventions and of discrimination against women and people with disabilities. Strangely, it neglects to mention the recent Supreme Court case in which three out of the five judges found that the existing cap fails to comply with the UN Convention on the Rights of the Child and two found that it breached Article 14 of the European Convention on Human Rights. As Lord Kerr put it: ‘It cannot be in the best interests of the children affected by the cap to deprive them of the means of having adequate food, clothing warmth and housing.’ See p10 of this Child Poverty Action Group briefing for more on that.

Needless to say, it has nothing to say about the impact on local authorities that will be left picking up the pieces from evictions and homelessness and paying the bill for temporary accommodation. See Giles Peaker’s assessment of the £23,000 cap on Nearly Legal for more on that plus the potential for legal challenges.

Fifth, the original cap was based on the simple proposition that people out of work should not receive more in benefits than someone can earn in work. This was always dubious given that people in work also receive benefits and tax credits but at least there was a link to average earnings. The new cap breaks that link, with Iain Duncan Smith arguing it reflects what four out of 10 of us earn. However, the Bill also gives him the power to vary the cap in future regardless of what happens to earnings (‘by the way many people tell me that the cap is set far too high,’ he told MPs on Monday). The Bill also creates a precedent for having lower benefit levels outside London.

Finally, the Welfare Reform and Work Bill moves the goalposts. Many of these changes will inevitably increase child poverty but that is no longer the yardstick for success. The Bill replaces ‘child poverty’ with ‘life chances’ and paid work is seen as one of the main routes to improving them. On this basis, cuts in out-of-work benefits may make children poorer but they also make paid work relatively more attractive.

‘The benefit cap is supportive of the Life Chances legislation in that this policy gives the incentive for people to make the choice to move into work. The current benefit cap, at £26,000, has been shown to be successful with more households looking for, and finding work. The new, lower, tiered cap aims to build on this success by strengthening the work incentive for households. In this way the number of children living in workless households could fall over time.’

This is about more than just words. Hey presto: a cap that will make an extra 224,000 children poorer (on the DWP’s own estimates) is also their route to salvation.